FHA Loan Owner Occupancy Question

[Zachary Wagner]

Hello all,

Long time follower, first time poster.

Here's the situation that my wife and I are in: We currently own two condos in the same village outside Chicago. The first is a 1BR that we use as our primary residence. The second is a 4BR that we currently rent out but we hope to one day use as our long term home.

My wife and I recently had the joy of welcoming our first child (a girl) into the world. It's been a great first four months, but our 1BR is starting to feel a little small!

We are currently toying with the idea of acquiring a third property to live in while we wait for our tenants to move out of the 4BR condo. We're looking at duplexes in the next town over in the $200–$250k range. We've found some decent options that we would consider putting in an offer on. We're hoping to put about 10% down since we only have about $35–$40k in cash holdings. The lender we've been talking to says he's hitting some bumps on the "back end" (not entirely clear on what that means), but the front end looks good. Apparently, this is making securing conventional financing difficult (when putting less than 20% down). He is seeing if an FHA loan may be possible, but I'm hesitant about FHA for the following reason...

Our current tenants (at the 4BR condo) have expressed a desire to renew their lease on a month to month basis once their current lease expires on January 1, 2018. The husband recently accepted a job to move to Switzerland, but he isn't entirely sure on the timeline. He says they'll be looking to move out during the first half of 2018. The condo association will likely not allow us to get another renter in this property. They were hesitant to allow us to rent it out in the first place. So once our tenants move out, we will have to move in.

That being said––there is a strong possibility that would need to move again from the owner unit of the duplex we're hoping to acquire into the 4BR condo we already own before we have lived there for a year. We would then convert both units of the duplex into rentals, which I understand would be a violation of the FHA loan agreement.

Is there any way around the one-year occupancy rule for FHA? Would our situation possibly qualify us for an exemption? I certainly don't want to expose us to the possibility of mortgage fraud. I'm also struggling to understand why we aren't easily qualifying for a conventional loan with 5-10% down. We did a loan like this for our current primary residence with no problems. I'm happy to provide more specific numbers if that will be helpful.

Thanks!